- New chief executive appointed
- M&A drives the top line
A pleasing trading update from AG Barr (BAG) has increased the chances of medium-term earnings upgrades, with momentum growing through the second half of its accounting year. Management said trading improved despite “wet summer weather which impacted Q3 market conditions”.
The acquisition of the Boost Drinks business in December 2022 has had a wholly positive impact on results. The FUNKIN Cocktails and MOMA Foods brands also made significant contributions on the back of positive off-trade and speciality coffee demand. The latter subsidiary is engaged in the production of oat-based alternatives to standard dairy products. There is no shortage of oats north of the border, so it’s clear that AG Barr’s product offering has moved well beyond its flagship Irn-Bru brand.
Even without the benefits of M&A, the Scottish drinks group saw annual revenues tick-up by a healthy 7.6 per cent on a like-for-like basis. The overall top-line figure is now pitched at c£400mn, up by a quarter on the prior year. A proactive stance on pricing has helped sustain profitability, so management is now guiding for a 14 per cent rise in annual profit to £49.5mn, which is slightly ahead of market expectations.
Separately, the group announced that it has appointed former Saga (SAGA) boss Euan Sutherland as its next chief executive, effective from 1 May.
Input cost pressures are still evident, but Scotland's Deposit Return Scheme – which aims to encourage recycling by adding a 20p charge to single drink containers – has been put on ice until October 2025 at the earliest, removing an immediate area of uncertainty. Meanwhile, accelerated in-house manufacturing and the performance of acquired assets – particularly MOMA foods – should underpin long-term growth prospects. Sutherland is taking the reins at a favourable juncture, although the current rating of 17 times consensus earnings still doesn't look overly stretched based on historical precedent.
Last IC view: Buy, 485p, 26 Sep 2023
